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Jakarta Post

Hole found in Indonesia tax amnesty

  • Prima Wirayani and Fedina S. Sundaryani

    The Jakarta Post

Jakarta   /   Thu, January 5, 2017   /  06:45 am
Hole found in Indonesia tax amnesty Taxpayers consult tax office staff as they apply for the tax amnesty at East Java Tax Office II in Sidoarjo, East Java, on Aug. 8. (Antara Photo/Umarul Faruq)

The lower-than-expected amount of repatriated funds has left a gaping hole in the Indonesian government’s flagship tax amnesty, threatening participants with serious consequences.

President Joko “Jokowi” Widodo’s call in a television commercial urging taxpayers to bring overseas assets back home to develop the country, seems to have fallen on deaf ears.

The latest data shows taxpayers have remained reluctant to repatriate their assets, even after they expressed their commitment to do so in the first and second phases of the tax amnesty, which ended in September and December, respectively.

According to the Directorate General of Taxation, Rp 141 trillion (US$10.46 billion)-worth of assets had been promised to be repatriated before Dec. 31. The committed amount itself is far lower than the Rp 1 quadrillion initially targeted.

However, data from the Financial Services Authority (OJK) — which oversees the banking industry as the party that receives the repatriated funds — revealed that only 63.5 percent or Rp 89.6 trillion of the committed amount had entered the domestic financial system and most of the funds had been recorded as “cash and cash equivalents”.

The government is not happy with the result, as it wishes to see massive fund repatriation and the money directed toward the financial markets and real sector to move the economy because the state budget remains cash-strapped.

Finance Minister Sri Mulyani Indrawati confirmed there would be consequences for tax amnesty participants who had committed to repatriating their wealth, but failed to do so.

“If the participants said they would repatriate their wealth [but didn’t deliver by the end of the deadline], I will consult with the taxation director general on whether [their failure] would nullify their asset declaration,” she said at the Bogor Palace in West Java on Wednesday.

(Read also: Indonesia tax office sets sights on little fish)

Another option for the government would be to acknowledge their repatriation commitment and include it in the third and final phase that would end in March, meaning the participants would face a higher penalty rate of 5 percent, instead of 2 to 3 percent set in the first and second phases.

“This is if they still wish to repatriate their wealth,” she added.

Tax office spokesperson Hestu Yoga Saksama said it would implement Article 13 of the Tax Amnesty Law and treat the participants’ assets as income obtained in 2016, subjecting them to regular income tax and to a 2 percent penalty per month for a maximum of 24 months since Jan. 1.

Commenting on the fund gap, Yoga argued the tax office had not established an online monitoring system and relied on data from 21 banks that had been appointed to manage the repatriation.

“We only received a monthly report from the banks,” he said, adding that it would receive their full reports on the first and second stages on Thursday.

(Read also: Tax office sees surge of tax amnesty applicants as deadline nears)

Meanwhile, University of Indonesia economic professor Ari Kuncoro said attracting the funds back home was not an easy task as they were not idle funds. Instead, they are used as venture capitals and invested in various instruments, such as time deposits and equities.

“It’s not easy converting and transferring them to Indonesia. If for example their investment contracts are terminated, they will have to face penalties. So they may think it’s better to just declare the assets,” he said.

Center of Reform on Economics (CORE) Indonesia director Mohammad Faisal said the discrepancy between the data on tax office’s dashboard and realized amount could jeopardize the office’s credibility, which is already at stake in the eyes of the public.

Separately, business tycoon Sofjan Wanandi said he had checked with his colleagues and most of them had repatriated their assets.

“I believe more than 90 percent [of the repatriation amount] has entered [the country],” said Sofjan, who is chief economic adviser to Vice President Jusuf Kalla and the prime initiator of the amnesty.

“Those who have yet to repatriate [their assets] will be imposed a penalty and they, for sure, don’t expect that,” he added.

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